Celltrion, which canceled the manufacturing contracts for over 37 million COVID-19 rapid test kits without just cause from its subcontractor, is facing sanctions from regulatory authorities. The company was also found to have failed to issue proper legal documentation during the contract modification process.
The Fair Trade Commission announced on October 29 that it has decided to impose a corrective order and a fine of 630 million won ($6.3 million) on Celltrion for violating subcontracting laws.
According to the commission, Celltrion entrusted the manufacturing of COVID-19 rapid test kits to subcontractors seven times between September 2021 and January 2022. The issue arose when the company changed the type of products during the manufacturing process without properly issuing related contracts.
After placing a second order for professional-use rapid test kits on October 2, 2021, Celltrion altered some of the quantities to personal-use kits in January 2022. In March of the same year, it changed some quantities back to professional-use kits but did not issue a modification contract.
In the seventh order placed in January 2022, the company again changed personal-use kits to professional-use kits and then back to personal-use kits without issuing the required legal documentation. For the third order in November 2021, the company only issued a written contract detailing product names, quantities, and prices on December 16, after the subcontractor had already begun manufacturing and delivering the products.
The investigation revealed that Celltrion unjustly canceled the manufacturing contract for 37.17 million test kits on December 26, 2022, despite having no grounds to blame the subcontractor for the cancellation.
The canceled quantities included 1.86 million from the second order and 35.31 million from the seventh order. The subcontracting law prohibits the main contractor from arbitrarily canceling or changing contracts when the subcontractor is not at fault.
As a result, the Fair Trade Commission decided to impose a fine of 40 million won for the violation of the written contract issuance obligation and 590 million won for the unjust cancellation of the contract, totaling 630 million won. A corrective order to prevent recurrence was also issued.
The government has recently intensified penalties for violations of subcontracting laws. Following the amendment to the subcontracting law enforcement decree that took effect on August 11, the limits for increasing or decreasing fines for repeated violations were expanded from 50% to 100% of the basic calculation standard. However, since this incident occurred before the revised fine guidelines were implemented on August 4, the previous standards were applied.
The Fair Trade Commission stated, "This action penalizes unfair subcontracting practices by main contractors and is expected to contribute to the protection of subcontractors' rights. We plan to continue to strictly sanction violations of subcontracting laws to rectify unfair trading practices and establish a fair subcontracting order."
* This article has been translated by AI.
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